To The Rescue

Intel, Walgreen's, McDonald's, Federated Department Stores, Time Warner and Wal-Mart. These companies have more in common than leading their industries and topping the Fortune 500 list. They're among the growing number of corporations that are responding to increasing business and legal needs by placing lawyers in their human resources departments.

As federal and state governments passed new labor and employment regulations throughout the past few decades, and a determined plaintiffs' bar began suing anyone with deep pockets, companies began to realize that it's not enough anymore to have the legal department advising HR from a separate department.

"Companies are looking for lawyers who can be right there on the front lines working directly with the HR professionals to prevent or steer companies through tough labor and employment legal issues," says Michael Gray, a labor and employment partner in Jones Day's Chicago office.

Although some companies have historically recognized the need to staff lawyers in the human resources function, more and more companies today seem to be following suit. Most recently Atlanta-based UPS announced that Allen Hill, the company's seasoned and well-respected general counsel, was leaving the legal department to sit at the helm of its human resources department. And in 2005 Philadelphia-based Comcast Corp. recruited long-time Ballard Spahr Andrews & Ingersoll partner Charisse Lillie as its executive vice president of human resources.

Experts believe adding lawyers to the HR function in any capacity is a welcomed relief for busy GCs.

"General counsel are facing so many issues in today's corporate legal environment. Companies would be smart to place lawyers in other functions, such as HR, where they can provide immediate guidance," Gray says. "Just helping with the compliance work alone can take tremendous pressure away from the GC's office."

Rising Action

One of the forces driving companies to place lawyers in HR is the increased need for litigation support.

Every year plaintiffs file thousands of labor and employment related suits. And those numbers continue to rise. The EEOC alone filed more than 400 suits on behalf of employees in 2004.

But what's especially concerning for employers is the threat of class action litigation. Dukes v. Wal-Mart, for example--the largest sex-discrimination class action ever filed with more than 1.6 million complainants--put companies on guard, forcing many HR and legal departments to re-examine their clients' current recruiting and promotion policies.

Traditionally, a company's legal department handled issues that arose in the labor and employment area. But as litigation becomes a greater threat, many companies are recognizing the need to have legal experts within the HR department get involved in legal matters as early as possible. Getting involved early on, experts believe, can avert costly lawsuits.

"The earlier a labor and employment lawyer can get involved, the better the chances of avoiding a full-blown legal battle," says John P. LeCrone, a partner at Davis Wright Tremaine in Los Angeles.

The evolving regulatory environment is only adding to the uptick in employment-related litigation.

"As regulations change, so does the threat of lawsuits," Bulger says. "Companies are seeing more and more people who are willing to sue them. And they are responding to that trend."

Since the 1970s, Congress has enacted the bulk of today's labor and employment regulations, including the Occupational Safety and Health Act, the Americans with Disabilities Act (ADA) and the Family and Medical Leave Act. The impact on companies over the years has been profound.

"When these new regulations began to go into effect, it changed the way companies in America operated," Bulger says. "There was this immediate coming together of HR and legal in a way most companies hadn't experienced before."

But recently, some labor and employment regulations have garnered additional attention.

In 2002 former Enron employees shined a spotlight on the Employee Retirement Income Security Act (ERISA) when they claimed the company violated the Act and began filing suits. ERISA imposes standards on employer-provided benefit plans. The former employees claimed Enron violated ERISA when it refused to compensate them for the money they lost in the company's 401(k) plan. Both sides are working to settle the case.

And in late 2004, changes to overtime rules under the Fair Labor Standards Act--which Congress enacted in 1938 to set minimum wage and maximum hours--had many legal and HR departments confused about how to implement the new rules.

"HR departments are having to navigate through numerous employment laws that are complex and confusing," says Sheryl Willert, a partner at Williams, Kastner and Gibbs in Seattle. "There are so many to weed through that it makes more sense to bring lawyers into HR that know those laws well."

Companies that have already brought lawyers into HR are proving the concept works.

Standing Guard

To handle labor law issues involving its more than 100,000 employees, California-based Intel has had a mini-legal department of sorts within its human resources function for more than 15 years. Eight lawyers in the U.S. (12 worldwide) work directly within HR.

"It puts us close to the decision-making that goes on around employee-relations issues," says Ogden Reid, director of human resources legal services at Intel. "By being in HR, we are able to build up good relationships with all the people that support the business."

The system has gone a long way in helping Intel prevail in employment-related lawsuits.

In Clevinger v. Intel, for example, a former Intel employee claimed in 2003 that the company violated her rights under the ADA when it didn't accommodate her depression and terminated her for poor performance. But in its decision, an Arizona district court said it believed Intel followed its administrative procedures properly in deciding to terminate the woman's employment for nondiscriminatory reasons, and the court ultimately ruled in the company's favor in October 2005.

"When managers are confronted with certain challenges, such as determining whether to discipline or terminate an employee, the HR lawyers are their first stop," Reid says. And although he didn't comment specifically on the Clevinger case, he says the lawyers in HR remain actively involved in managing any litigation.

"We are very hands-on," he says. "We have outside counsel that actually do the litigating, but we stay very closely involved."

But the team does far more than help its client win lawsuits. The lawyers take the lead in training Intel's employees on such issues as sexual harassment and discrimination to prevent future liability. They also regularly counsel managers and human resources staff about how to handle individual situations.

"A company's brand increasingly gets impacted by ugly HR issues," Reid explains. "The cost of that happening is much greater than litigation. Protecting the brand by ensuring we don't have any internal ethics issues or any kind of ugly discrimination or harassment suits--that's what's important to Intel."

Reid says he and his team are able to successfully support Intel in these matters because they are readily and immediately available to handle any issue.

With all the different issues legal departments have on their plates today, GCs may welcome the idea of placing lawyers in HR to tackle labor and employment problems before they happen. But an internal HR legal structure such as the one at Intel--in which the HR lawyers report to the vice president of human resources, not the general counsel--may not work for everyone.

Finding A Place

Illinois-based W.W. Grainger took a different approach. A much smaller company than Intel--with a mere 15,000 employees worldwide--Grainger has only one lawyer working in the HR department. And he reports to both the vice president of human resources and the general counsel.

"The reporting structure really works well for Grainger," says Hank Galatz, Grainger's labor counsel. "In working with both individuals, we are constantly challenging each other to come up with approaches that will reach the best possible solution."

Galatz, who joined Grainger in 1980, spearheads any legal project that falls under the HR umbrella. He handles everything from training and compliance issues to counseling management on employment decisions.

Galatz says the driving force behind Grainger's decision 25 years ago to hire a lawyer for its HR department was visionary. "There had always been a value to having someone work in HR who not only knew the company and its employees, but also had a breadth of understanding in the specific area of labor and employment law," he explains.

As U.S. laws continue to change and become more complex, more and more lawyers are finding it necessary to focus their expertise in one area.

"The truth is, we are becoming a nation of specialists," Galatz says. "The disciplines associated with labor and employment law are so unique and specific, to fully comprehend them, one would have to be involved with them on a daily basis."

Having a close connection between legal and HR has allowed Grainger to take into account not only the needs of the shareholders and the corporation when making decisions, but also the needs of employees.

"Obviously we are continuing to see the consequences a bad decision can bring," he says. "There is an increased need in human resources to have an in-depth understanding of the obligations one may be faced with, but more importantly, we must know how to get to the appropriate solution."

Whether it's within a large company such as Intel or a slightly smaller company such as Grainger, labor and employment experts believe a legal presence is essential to the health of any company's HR function.

Human resources professionals, however, may not agree.

Not For Everyone

While Reid and Galatz were hard pressed to find any disadvantages to having lawyers in HR, some experts point out several.

First, HR departments are scrambling to prepare for the deficit of talent the baby boomers will leave when they retire. By 2030 nearly 76 million boomers will retire. And only 44 million Generation-Xers are available to replace them.

"The changes in the HR function over the past several years are centered on retaining talent--get it, keep it and grow it," says Hal Johnson, managing director of the human resources practice at Korn Ferry. "Most lawyers are good at running the department tactically and understanding the governance stuff, but that's really a secondary priority right now."

Second, employees may not know whether their conversations with HR lawyers are protected under attorney-client privilege.

"This can become very confusing for employees who are working with lawyers outside the legal function," Willert says. "Companies need to be very upfront about what the roles of those lawyers are."

Comcast, for example, recently placed lawyer Charisse Lillie at the helm of HR, but the company has been very active in explaining to its employees that the legal department will continue to handle all of the company's labor and employment issues.

"I am not working as a lawyer," Lillie says. "I work as a strategic business partner for Comcast, and we make that clear within the organization. It works for the company."

That said, Lillie admits her skills as a litigator and experience in labor and employment law at Ballard Spahr helped land her the coveted position at Comcast.

"A law degree is particularly helpful in the HR context because you are constantly analyzing and problem solving," she says. "But I don't believe it's a requirement for working in HR."

How to staff an HR department is really dependent on a company's needs. For smaller companies, hiring a lawyer to work in HR may simply be too expensive. Other companies may think the legal department works closely enough with HR to handle the labor and employment issues effectively.

Most experts agree, however, that an appropriate balance between the human resources and legal functions is long overdue.

"There is clearly a need for a marriage between legal and HR." Bulger says. "Companies are just now figuring out what works best for them."